Chief Investment Strategist, The Freeport Society
Autarky.
Unless you love reading dusty economics books, you’ve probably never heard the word before.
It’s economist-speak for total economic independence or self-sufficiency.
Autarky is to describe hippy communes or communist worker paradises. (Think Cuba.)
It certainly wasn’t anything our favorite free-market economist, Adam Smith, would have advocated for.
But it’s America’s new trade policy.
In his big tariff speech yesterday, branded “Liberation Day,” President Trump promised to free us from dependence on foreign imports by taxing the hell out of them.
So far, Mr. Market isn’t happy about it.
Markets in Asia are bleeding red, with Japan’s Nikkei down nearly 3%.
Same goes for Europe. Its version of the Dow, the EuroStoxx 600, is also down close to 3%.
And here in the U.S. the S&P 500 was down nearly 4% as I write this.
So, today, we’ll unpack yesterday tariff announcements. We’ll look at what’s coming down the pike… why investors are unhappy about it… and why it could mean a return of stagflation.
We’ll also look at the practical steps you can take in your portfolio to protect yourself.
Before we dive in, I want to remind you that I’m neither a Republican nor a Democrat. I consider both parties to be economically illiterate and morally bankrupt.
My beat is the markets.
My mission is to help you navigate the Age of Chaos we’re living through so that you can grow your wealth, protect what’s already yours, and live the life you want to live.
President Trump has plenty of economic policies that are consistent with the Freeport Society’s core beliefs in free markets and minimal, light-touch government.
But I can’t say the same for his tariffs.
They may be great if you’re operating a U.S. steel mill. But they hurt everyone else with higher prices.
54% Tariffs… Ouch!
I was hoping for more clarity from Trump during his “Liberation Day” speech yesterday.
Unfortunately, we didn’t get that.
This wasn’t a major policy roadmap. It was just a “made for TV” version of Trump’s past tariff announcements.
It’s clear from their size and scope that these are not “permanent” tariffs. They’re a starting point for negotiations that may drag on for weeks, months, or even years.
So, we can plan on more chaos.
Let’s go over some of the details.
Starting Saturday, there will be a blanket 10% tariff on nearly all goods imported into the U.S.
This will not apply to certain items, such as cars, steel or aluminum, which have higher 25% tariffs.
That’s higher that I had hoped for but probably not catastrophic.
It’s the reciprocal tariffs where it turns into a real mess.
It’s not as simple as saying, “China charges a 20% levy on American goods, so we’re going to levy an equal 20% on Chinese goods.” The administration also did a calculation of “non-monetary barriers and other forms of cheating.”
I have no idea what exactly that means. No one does. But it includes some form of murky adjustments for differences in wages and exchange rates.
China has lower wages than the U.S. and holds down the exchange rate of its currency – the yuan – versus the dollar. So, this factors into the calculation.
Trump then cut this adjusted rate in half.
For example, the administration calculated that China charges tariffs and “other non-monetary barriers” of 68%. So, the U.S. will hit importers of Chinese goods with a 34% tax.
But that’s not all…
The tariffs are stacked. So, the 34% reciprocal tariff on Chinese imports gets added to the 20% levy already in place.
That means Chinese goods will now come with a 54% tariff. Treasury Secretary Bessent confirmed as much.
You know me. I’m not a doom-and-gloomer. That’s not my style, and it never has been.
But this is a big deal. A really big deal.
Douglas Irwin is professor of economics at Dartmouth College and an expert on the Great Depression. He says, “This is going to be much bigger than Smoot-Hawley.”
That’s a reference to the Smoot-Hawley Tariff Act of 1930. It dramatically raised tariffs on more than 20,000 goods imported in the U.S.
Countries retaliated. Trade wars broke out. International trade collapsed.
And the U.S…. and most of the industrialized world… slid further into the Great Depression.
Today, imports are equal to about 14% of U.S. GDP—about three times more than when the Great Depression started.
Stagflation, Anyone?
This is obviously a negotiating tool for Trump…
At least I hope it is.
This was his attempt at shock and awe. His Treasury secretary, Scott Bessent, said as much when he advised “none of the countries to panic” about the tariffs following Trump’s announcement. He also said that these were the upper end of the tariff ranges so long as no one retaliated.
But those negotiations will take time, and the economic fallout will be immediate and real. We may even see that ghoul from the 1970s, stagflation, make a comeback.
Stagflation is a toxic combination of high inflation coupled with slow (or nonexistent) growth.
It’s just about the worst possible economic outcome because it leaves policy makers between a rock and a hard place. They can’t do stimulus for fear of stoking even higher inflation. And if they try to cool inflation, they risk further hampering growth.
Inflation estimates are all over the map. But the average estimate is that the tariffs will add another 2-3% to the annual inflation rate.
That would put us at 5-6% core inflation. (Core inflation doesn’t account for more volatile food and energy prices. Including those figures, the real inflation you feel in your day to day life will likely be a lot higher.)
Meanwhile, the Atlanta Fed’s GDPNow tool now forecasts that the economy shrank by a full 3.7% in the first quarter.
These are estimates. We’ll see soon enough what actually happens. But it’s looking to be nasty.
A Mag 7, Not a MAGA, Problem
When asked by a reporter what he thought about the stock market dropping in after-hours trading, Bessent made a comment that stuck with me.
The market has a “Mag 7 problem, not a MAGA problem.”
He’s not necessarily wrong about that. As I have been writing for months, tech stock valuations are ludicrous.
Take any of the Magnificent Seven group of giant tech stocks – Nvidia, Apple, Amazon, Alphabet, Meta, Microsoft, or Tesla – and the valuation would have recently been worth more than the entire stock market of a major European country.
Investors had been pricing these stocks for perfection – as though nothing could go wrong and profits would continue to expand forever.
And it’s been a crowded trade. Every hedge fund, mutual fund, pension, sovereign wealth fund and even mom and pop traders already owned outsized positions.
Who was left to buy Nvidia and the other Mag 7 stocks who didn’t already own a massive position?
No one.
A market priced like that is a proverbial bug in search of a windshield. And that windshield came in the form of Trump’s trade war.
What to Do
As my colleague John Pangere wrote in these pages yesterday, try casting your net a little wider.
Overseas stocks are cheap and under owned. They also performed fantastically well after the last tech bubble burst in 2000.
For instance, as I wrote in these pages last week, value stocks outperformed growth stocks by a whopping 50% between 2000 and the market top in 2007.
Gold did exceptionally well that decade, too. Between 2000 and 2010, the price of gold shot up by about 400%.
So, I will scream until I’m blue in the face that you need to own some gold. It’s irresponsible not to.
But more than anything, stay nimble. We may be in a chaotic environment, but chaos creates opportunities if you have the cash available to pounce.
That’s what we do in our Freeport Alpha advisory. Instead of worrying about whether “the stock market” is going up or down, we follow the money.
We use a sophisticated algorithm to spot when deep-rooted investors are piling into certain stocks. Then we buy and ride that stock higher. If you’re a Freeport Alpha subscriber look out for more trades from me on most Tuesdays.
And speaking of casting a wider net, I’ll be speaking at the Crisis & Opportunity at the End of the World Virtual Summit next Wednesday, April 9, taking the stage with George Gammon, Founder of Rebel Capitalist, Chris MacIntosh, Founder of Capitalist Exploits, and the event’s host and author of Notes From the End of the World, Joel Bowman.
I’ll be speaking from 3 p.m. to 5 p.m. ET. It’s free to sign up, and you’ll get to hear me riff on Argentina’s economic miracle… and look for ways to profit from it. Join me!
To life, liberty and the pursuit of wealth.